Artificial intelligence (AI) stocks are suddenly seeing red. The segment plunged last week after a pair of earnings-driven declines from ASML and Taiwan Semiconductor, two leaders in semiconductor manufacturing, sparked a broader sell-off.
On Friday, one analyst questioned Super Micro Computer‘s (NASDAQ: SMCI) decision to not release preliminary revenue results, though it had turn right into a custom, and that led to a bloodbath. Supermicro stock finished the session down 23%, Arm Holdings lost 17%, and Nvidia (NASDAQ: NVDA) finished the day down 10%.
Is the AI bubble bursting, or is that this only a temporary sell-off? No one knows the reply to that question, but a pair of Wall Street analysts think two top AI stocks, Nvidia and Supermicro, are each headed lower. Keep reading to see why.
1. Nvidia: 19% downside
Nvidia has been the undisputed leader inside the AI boom. While OpenAI’s launch of ChatGPT kicked off the generative AI race, Nvidia has raked in nearly all of the industry profits so far, as sales of its graphics processing units (GPUs) and related components form the backbone of the infrastructure that makes AI apps, like ChatGPT, work.
Nvidia’s revenue has tripled in recent quarters, driven by soaring AI demand, and its profits have grown far more rapidly. Nevertheless, one analyst thinks that Nvidia could have further to fall after Friday’s sell-off.
DA Davidson’s Gil Luria weighed in on Nvidia stock after the company’s February earnings report with a neutral rating and a price goal of $620. This implied a decline of 21% on the time, or 19% from Friday’s close.
Luria acknowledged that Nvidia delivered strong results and is in a position to proceed dominating the AI compute space, but he also expects the company’s competitors to catch up. The analyst sees a likelihood that Nvidia’s demand will decline in the following 4 to six quarters.
Competition is indeed coming for Nvidia, as AMD and Intel have each launched competing AI GPUs. Nevertheless, it’s still too early to tell within the event that they’ll take significant market share from Nvidia.
Nvidia’s growth rate is definite to slow within the approaching quarters because it’ll face tougher comparisons, nonetheless the Wall Street consensus calls for strong growth to proceed. If revenue were to say no as Luria seems to imply, a minimum of in some categories, the stock would almost actually plunge.
2. Supermicro: 65% downside
Like Nvidia, Supermicro has been an unlimited winner from the AI boom. The maker of high-density servers, which work especially well for running AI applications, has skyrocketed for the rationale that starting of 2023. Its revenue might be soaring, up greater than 100% in its newest quarter.
Nevertheless, not every analyst is sold on Supermicro’s potential. Susquehanna rated the stock a sell, with a price goal of just $250 after the company’s earnings report at the highest of January. This implies a 65% decline inside the stock from its current price.
The research firm acknowledged the secular growth in AI compute but saw quite just a few problems with the company’s results. As an illustration, despite soaring revenue growth, Supermicro’s gross margin declined, which Susquehanna sees as a scarcity of leverage in its business model. It also noted a demanding working capital requirement, which could have led to the company’s decision to spice up $2 billion in March. Susquehanna also questioned the overall quality of the company’s earnings.
The Friday sell-off in Supermicro shares could portend greater problems for the company if its third-quarter earnings report disappoints. Investors predict one other surge in revenue when it reports earnings on April 30.
It is likely to be a surprise for the company to miss its own guidance from late January, as there are still high expectations baked into the stock. Regardless of the numbers, investors should expect the volatility in Supermicro’s stock to proceed.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends ASML, Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Idiot has a disclosure policy.
2 Artificial Intelligence (AI) Stocks That Could Fall 19% and 65%, In response to a Pair of Wall Street Analysts was originally published by The Motley Idiot